By Fernando Berrocal
If you’re a startup founder, you’re likely aware that money is your organization's lifeblood. You’re likely facing a shortage of funding that has rendered you unable to pay a prospective worker, buy a piece of machinery or equipment, establish inventory, or even sell your product or service.
These are considerable hurdles; however, none of these common realities prevent startups from successfully bootstrapping–without outside investment. One excellent example is Mailchimp, a well-known bootstrapped business that Intuit acquired in 2021 for $12 billion. Nevertheless, the majority of businesses need a sizable amount of outside funding in order to launch. In this post, we'll go over the steps that every startup shouls take before approaching potential investors; and how to pick the best one for your business.
- Comprehend your finance requirements.
There are several considerations when considering whether to approach investors. Do you require cash? What do you intend to do with it? Many founders neglect to properly evaluate whether or not their startup requires funding. If you need capital, what is the main goal? Is it to reach a certain point to raise the next round, or to make money and expand long-term? Do you have a product that fits the market? If not, what are the barriers you face in achieving product-market fit? Is capital needed as a means to buy inventory? Alternatively, do you need financial support so you can successfully research and develop (R&D) products? Make sure you have a strategy regardless of the circumstance.
Remember: there is no such thing as free financing. When you accept investment capital, you hand over control of a portion of your business. It's critical to assess whether seeking money is necessary. Are you prepared to part with 10% or 20% of your business? Don't anticipate getting paid unless the investor can see a return on their money. Investors are aiming for the absolute highest return on investment (ROI). Reaching out to investors may be the best course of action if your firm is ready to scale up but lacks the funding–or if your business model isn't lucrative yet.
- Ensure your team is on the same page.
Think about how the legal entity structure of your business will affect capital raising–before you start contacting investors and creating your pitch deck. Consider, for instance, a single-member LLC that only has one owner. This individual has complete authority over the business. They are free to select investors as they please. In contrast, a partnership would entail two owners who each have to make one investment choice. In a third scenario, a business could have a board of directors who would need to be consulted before adopting any decisions.
It's a significant choice to bring on investors. Plan properly; give yourself enough time to achieve the right decision. Don't put off convincing your partner until the last minute. The last thing you want to do before such a big milestone is to cause division. Instead of causing chaos, this event ought to serve as an opportunity for celebration.
- Look into recent business activities.
Finding out what kinds of investments are trending will be beneficial to your enterprise. By examining other recently financed businesses–and finding out how those agreements were structured–you may gather intelligence. Additionally, you should take note of the investors participating in these agreements, and the kinds of investment rounds that are occurring. You may use Crunchbase, a simple application, to aid with your investigation. When it's time for you to start seeking funding for your projects, the knowledge you acquire during this phase will help direct your interactions with possible investors.
- Determine your ask
It's now time to decide how much to ask for–and how to arrange the sale, now that you are aware of what’s common among businesses in your size and sector. So, how much do you need? The solution: as much as you can possibly get. You won't ever need to seek further funding from investors if you can raise a substantial sum in your initial round. Ideally, you should raise enough to help your business achieve a profitable stage. This might not be feasible at first, and you'll probably need to look for other fundraising rounds. To meet your next financing milestone, which is typically reached after 12 - 18 months, try to raise enough money during your seed round.
- Make a list of potential investors.
Consider developing an investor persona, which is similar to constructing a buyer persona for your clients. Focusing on this can help you raise money–which is a full-time job, by the way! Create a list of prospects. Treat your fundraising effort like a sales process. You should determine the type of investor you're searching for before using LinkedIn best practices. What stage of your firm's growth are you at? Do you require expansion financing or seed money? Are you searching for venture capitalists (VCs) or angel investors? Finding your desired investor profile is crucial. Location, industry, fund size, and portfolio makeup are further crucial variables.
- Finally, put together a pitch deck.
It’s time to put together your pitch deck presentation, so you can explain to potential investors why your business is the one that they should consider. You'll utilize a pitch deck to introduce your business to potential sources of capital. It should contain the details they want, such as the issue you're trying to solve, your proposed solution, the estimated cost, and how you stand out from the rivals. It is a sales deck similar to those you may see in marketing, but it has a particular structure and objective.
According to Forbes, the business overview and mission/vision of the business slides should make up the first of your pitch deck. Next, you should display the important slides: financial, marketing, business mole, and traction. Other slides include those for the team, the issue, the solution, the market opportunity, the product, the customers, the technology, and the competitors. All of these slides–except for the "traction" slide–are self-explanatory. This is useful to demonstrate any successful growth your business has seen, which can impress investors. It might consist of media mentions, awards, client endorsements, product reviews, and strategic alliances.
For instance, to enhance their levels of client acquisition, many startups form agreements with other businesses in their specialized market. Your business should highlight this strategic alliance on the "traction" side. One instance would be if a company works with a bank that provides accounts for minors, and the target market is young adults or teenagers. This pitch deck, in essence, should be a concise explanation of why your business is fantastic and how investors can utilize it to generate profits.
Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.
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